Market Strategist
Summary: The Australian market trades higher for the second day, moving off its 30 day average, buoyed by gains in lithium with Novonix up 7%, Liontown is up 4%, while retailer JB Hi Fi jumped over 7% after reporting better than expected earnings results. But the news of day is from lithium giant, Allkem expecting the lithium price to jump 80% in the second half of the year, while Rio Tinto reported its quarterly report, expects yearly production to rise across all major commodities. Plus, we dissect how professional investors are investing vs retail, and why to watch iron ore stocks like a hawk at these levels as iron ore has fallen for the third session, and could pull back further before potentially rising again in March.
ASX News of the day
Australia’s second biggest lithium stock, Allkem (AKE) (founded after Orocobre and Galaxy Resources merged) released its quarterly report, announcing higher overall sales, production and shipments in the quarter, while also expecting the lithium carbonate price to rise 80% on the first half of 2022 (to $20,000/t) due limited supply, while it’s observing ‘very strong demand’. This not only supports Allkem’s stock but also the lithium sector, as higher prices imply higher earnings and higher earnings support share price growth. As for Allkem’s flagship lithium mine in Olaroz in Argentina, in the lithium triangle, total sales revenue jumped 68% QoQ and up 149% from the prior corresponding period. Allkem is also expanding the facility and works reached 68% completion, with first production expected in the second half of this year. As a result of the extra work done capital expenditure was raised 10-15% to ($365-$390m); with spending funded from guaranteed funds. Allkem’s other mine, Mt Cattlin in Australia, revenue was 15% lower in the quarter as it shipped 58% less. Also in the quarter, AKE was added the ASX100 Index. AKE shares rose to a record al time high, $11.91 pulling most lithium stocks up with it.
Rio Tinto (RIO), the world’s second biggest miner, released its quarterly results seeing a 1% a upturn in quarterly exports in the final three months of 2021, while also noting its expects 2022 iron ore shipments to rise as much as 4% (expecting 320- 335 million tons). However Rio says iron ore shipments remain subject to weather and market conditions. The miner also said shipments have not been as strong in the Pilbara due to staff shortages in Western Australia, and delays in starting new mines. As for copper, guidance for 2022, Rio sees mined copper shipments rising from 494 kt 1.2-to 16% (to 500 to 575 kt), while Diamond shipments are tipped to rise as much as 57% in 2022, Bauxite shipments could rise up to 5%, and Alumina shipments up to 6%. Rio Tinto shares trade 0.4% higher at $110.42, a 4-month high.
What is happening in markets
US markets were closed overnight for a public holiday. However the next big driver for equity is that earnings season is underway. Earnings are expected show the S&P500 companies grew their earnings by 20%. Remember earnings growth drive share price growth. And better than expected results often result in share price rallies. While inversely, weaker than expected results or forecasts often result in shares pulling back. This week in the US Procter & Gamble and Netflix will be watched on the consumer side and Goldman Sachs and Bank of American will be watched in banking.
Professional vs retail investors, are investing differently:
Iron ore price fell 2% on Monday, falling for the third session, what's next?
On Monday; Fortescue Metals (FMG) fell 3%, but on Tuesday FMG trades 1.3% up. On Monday BHP lost 1.1%, and today it erased that and rose 1.5% and trades at $46.85. Champion Iron (touted as the most undervalued) was steady on Monday and trades 1.8% up today. But be careful if you are trading iron ore stocks as they are susceptible of a pull back, before another potential rally again. Why;
On the negative side; privately owned Hancock Prospecting (owned by Australia’s richest woman) announced plans to develop a 20 million tonnes per annum iron ore mine in the Pilbara, that would operate for up to five years. And secondly; the iron ore price eased as orders are expected to slow in Luna new year holiday.
On the positive side; iron ore orders are expected to pick up after the Winter Olympics games are over, so if you are a long term investor, you could have your time to buy the dip. Iron ore orders are likely to continue to pick up as the PBOC cut interest rates yesterday and the country is ramping up more infrastructure stimulus, all while its economy is growing stronger than expected.
For Iron Ore analysis, see the latest here.
Recent news from China is positive;
Oil’s bull run continues;
Currencies
What to watch this week
Potential Trading ideas
Today’s ASX broker upgrades to peruse
AI: The good, the bad, and the bubble
While a deep recession may not be iminent thanks to central bank policy, interest rates will have to stay high for longer, and this will be accompanied by volatility risk from the unwinding of bubbles, especially within AI.
Steen Jakobsen,
Chief Investment Officer
The emergence of advanced AI systems is by far the most surprising event this year, turning everything upside down, while risks and benefits are debated. AI will also become an arms race between the US and China.
Peter Garnry,
Head of Equity Strategy
As China navigates global fragmentation, its cycle of technology application, productivity enhancement, and growth is threatened by US breakthroughs in generative AI, limited computing power, and geopolitical tensions.
Redmond Wong,
Market Strategist
Japan’s expertise in semiconductors and robotic integration could be the foundation of AI dominance. Combining two of this year's themes, Japanese equities and artificial intelligence, brings a wave of opportunities.
Charu Chanana,
Market Strategist
The AI fever has turned the technology into a darling, pushing crypto further into no-man’s-land. There are striking similarities between AI and crypto, and if these are to come full circle, AI won't be spared for bubbles.
Mads Eberhardt,
Cryptocurrency Analyst
Stocks related to artificial intelligence (AI) have appeared on investors' radars. Expectations are high, but it may be necessary to consider how to get exposure to AI in a diversified way.
Hans Oudshoorn,
Trainer Academy
The USD is on its back foot as markets celebrate an eventual Fed rate peak and steady long US yields. The stakes are even higher for the Japanese yen if longer major sovereign yield curves have to price in economic acceleration.
John J. Hardy,
Head of FX Strategy
While commodities, broadly speaking, have faced some tough months, a partial reversal during June could signal that the asset class is getting back on its feet with energy holding up and precious metals with upside potential.
Ole S. Hansen,
Head of Commodity Strategy
As inflation remains high central banks face hard decisions about whether they should keep hiking interest rates or stop. Meanwhile, the rise of AI creates bubble-like conditions that only make the decision harder.
Althea Spinozzi,
Senior Fixed Income Strategist
